How data is helping procurement gain visibility and control over spend

THE ARTICLES ON THESE PAGES ARE PRODUCED BY BUSINESS REPORTER, WHICH TAKES SOLE RESPONSIBILITY FOR THE CONTENTS

At the forefront: In recent years, data has taken on a central role in how procurement operates (iStock)

Amazon Business is a Business Reporter client.

In recent years, data has taken on a central role in how procurement operates. With technology now able to provide insight into how much organisations spend and with who, and how much spend isn’t under management, it’s possible for data to help shape key decisions. Big data and artificial intelligence, meanwhile, allow organisations to draw on wider sources of information and trends, helping companies better predict likely spend and demand patterns, as well as manage risk more effectively.

In Europe, governments and industry associations are encouraging greater adoption of data innovation and insights to promote transparency, sustainability and competitiveness, while those working in procurement must also be aware of the need to comply with strict GDPR data regulations.

There are three main ways in which procurement itself can use data in its day-to-day role:

Supplier relationship management

Data can help build stronger relationships with key suppliers, enabling procurement to identify exactly what is being spent and with which suppliers. Once businesses know who their key suppliers are and have better visibility around spend, they can then take steps to further build relationships.

From a risk perspective, this means ensuring they are financially viable and working closely to identify any potential issues that could cause problems. There are also opportunities to discuss cost-reduction initiatives, perhaps as a result of economies of scale or through designing out inefficiencies. Data can help hold suppliers to account, ensuring standards and quality do not slip.

“In Europe, the complex regulatory landscape and market volatility means it’s vital that companies understand the importance of supplier risk management and can maintain a strong relationship with suppliers,” says Nicolas Olague, private sector leader, corporate, at Amazon Business. “Partnering with an e-procurement solution such as Amazon Business can help bring this kind of information together,” he adds, “providing visibility into spend and suppliers, as well as elements such as performance around delivery.

“Data can help organisations better understand how much spend is linked to individual suppliers and how dependent they are on particular ones,” he adds, “and can also identify opportunities to improve cash flow and sustainability performance. Amazon Business, for instance, enables procurement departments to direct internal customers towards particular products which have met sustainability or other CSR criteria such as local or small companies, through its Guided Buying tool (a Business Prime feature).”

Demand forecasting

Being able to accurately forecast demand is vital if organisations are to ensure they buy in the correct quantities and hold the optimum level of stock, with the ensuing cash flow benefits. In Europe, a diverse business landscape, the unique market dynamics and strict regulatory environment makes for a complex picture. Data can help predict consumer needs, as well as identify anything that might potentially disrupt supply or transport links which could have an impact on stock levels.

This can be achieved in part by identifying previous levels of customer demand and any seasonal, cultural or weather-related spikes, but can also factor in other sources using big data. For instance, it’s possible to identify long-term weather trends or potential shortages in components, and plan accordingly.

Such information can also help identify the best time to buy. Olague gives the example of PCs and laptops, which were in huge demand in 2022 as businesses and individuals sought to adapt to the post-Covid landscape. “There was very little stock, so the prices increased dramatically,” he recalls. “This year, companies have stock and there is less demand because laptops tend to last on average three years, but 2024 will be different again. Companies have to anticipate that and plan accordingly.”

“In the future, the use of artificial intelligence will be able to provide even more data for businesses around their own predicted use, based on historic use and expected growth plans,” he adds. Being able to accurately forecast demand can also have benefits in terms of sustainability, as businesses can group orders into fewer deliveries and ensure there is less waste overall.

Cost optimisation

Data can also identify opportunities for cost reduction, potentially as a result of previously unrealised insight into total spend, which could present opportunities for rate reductions or identify cases where the business may be holding excess stock. It can also highlight spend categories where the business is paying too much and running a competitive tender or looking for alternative suppliers might be appropriate.

Olague highlights the potential to reduce maverick spend, where people may take it on themselves to source their own items. “Many companies only look at their top 30% of spend which means they don’t control the other 70%,” he points out. “That means they will be buying products at rates that have not been negotiated.”

“By using data to find out how much organisations spend with such suppliers, it’s possible to start putting in more processes and policies around such activity,” he adds, “directing internal customers towards preferred suppliers and mandating spend limits where desired. Spend can be channelled to fewer overall suppliers, opening the door to further reductions and rebates as a result of greater spending levels with individual suppliers and economies of scale.”

“Amazon’s Spend Analysis and Guided Buying tools can assist here by providing the spend data companies need and directing employees towards approved suppliers and products. Effective use of data offers a massive opportunity and can help procurement with their wider goals,” concludes Olague.

To find out more about how Amazon Business can help you gain greater spend visibility and reduce maverick spend for smarter business buying, visit business.amazon.co.uk.